The 2022 tax season is officially underway and now is the time for Americans to increase their health savings by maximizing their HSA contributions. Advisors can play a crucial role in helping their clients understand how to maximize their tax savings through their health savings account (HSA) by helping to reposition HSAs as long-term investment savings vehicles.
This tax season once again follows a challenging year—with natural disasters and the ongoing Covid-19 pandemic impacting consumers.
However, unlike in 2021, there is no countrywide tax filing deadline extension. Instead, the filing deadline is back to “normal” for most consumers and taxes are due Monday, April 18 (because April 15 falls on a Friday).
Advisors with clients in Arkansas, Illinois, Kentucky, Tennessee, or Colorado should pay close attention to the filing extensions in those states. Advisors should advise clients that may have been impacted by the tornado and wildfire disasters in December and January that they may have a filing extension until Monday, May 16. These extensions apply only to counties designated as disaster areas by FEMA and a list of eligible areas is available on the disaster relief page on IRS.gov.
With the filing deadline quickly approaching, now is the time for advisors to ensure their clients understand how to take advantage of their HSA by reminding them to maximize their contributions.
HSAs are designed for double duty—covering health-care costs in the present and saving for long-term health-care needs through investment options—and maximizing contributions can help clients take full advantage of this.
For the 2021 tax season, the self-only coverage HSA contribution limit was $3,600 and the family coverage limit was $7,200. If a client is 55 or older, they can also contribute an extra $1,000. One thing to note—any contributions that exceed the IRS annual limit must be removed by the tax filing deadline or the consumer can incur tax penalties and/or IRS fees.
Also, important to know is if your client has begun Medicare coverage this year, their HSA eligibility will have ended beginning the month their Medicare coverage began. They can, however, up until the filing deadline, still contribute the appropriate prorated contribution limit attributable to the number of months they remained HSA eligible in the year. And regardless of current or future health coverage, they can always keep their HSA open and continue to use funds already in the account.
Since it is commonplace to maximize HSA contributions in the earning years leading up to retirement, employers should reinforce with their employees the triple tax break associated with and help educate employees regarding this transition as they navigate into Medicare coverage.
HSA contributions are tax-deductible, or pretax if made through their payroll deduction. The money in an HSA then grows tax-deferred, and withdrawals that are used to pay for medical expenses are tax-free.